Along with the eye-popping drop from Netflix that has dragged down much of the entertainment sector, internet retail is leading the way down for tech stocks. Among these names, Wayfair (NYSE:W -9.0%), Etsy (NASDAQ:ETSY -8.8%), and Carvana (NYSE:CVNA -9.0%) are crashing by the largest margin.
- Carvana and Wayfair were both cited by Seeking Alpha’s Quantitative Strategies team as stocks to avoid at the moment.
The market segment has been hit by a spate of bad news as of late, with higher rates threatening the high multiple growth stocks that populate the sector, persistent supply chain problems, and now Netflix’s big miss moving the entire tech sector down broadly as it bolsters concerns about bubble-like valuations.
While online retail was recently cited as a bright spot in retail sales numbers, the momentum from Netflix’s crash appears to be impacting e-commerce giant Amazon (AMZN) and adding to existing aforementioned factors squeezing the industry.
For Etsy (ETSY), the broader market dynamics bearing down on the sector only add to growing concerns about a potential sellers union forming to fight higher fees. In another sort of contagion, this concern on fees might be fueling the steep drop in shares of Shopify (SHOP) as well. Each stock has lost about half of their value in just the first few months of 2022.
In terms of price point, there is concern that inflationary pressures are set to hurt retailers for big ticket items like furniture and cars most, helping to explain the erosion in share price for companies like Wayfair (W) and Carvana (CVNA).
“We continue to look out for signs that the conflict in Ukraine, inflation, rising interest rates, and recessionary concerns are impacting consumer non-discretionary sales (in particularly higher-ASPs products),” Baird analyst Colin Sebastian wrote in a recent note to clients.
He also noted that Google search trends for “Carvana”, “Used Cars” and “Vroom” are all falling by double digits week over week, while furniture search trends related to firms like Wayfair remained largely flat. While tax refunds may rebound these trends, the rapid deterioration in search interest for autos especially was noted as a point of concern.
Carvana (CVNA) is scheduled to announce Q1 earnings results after market close. The company has been inconsistent in recent quarters’ earnings releases, only exceeding EPS estimates 25% of the time.
Read more on what to expect from Carvana after the close.